Share

EU State Aids and Tax Law

On 7 November 2014 the General Court of the European Union (‘General Court’) rendered two landmark judgments shedding light on the boundaries of the key notion of ‘selectivity’ in tax-related State aid cases. The judgments quashed two European Commission State aid decisions adopted in relation to the so-called ‘Spanish financial goodwill’ saga.

Aside from their direct impact on the companies affected by the Commission’s decisions in these cases (estimated at several billion euros), the General Court’s rulings are likely to have significant implications for other ongoing and pending cases, including the European Commission’s high-profile investigations into tax rulings and advance pricing agreements concerning multinational companies such as Apple, Starbucks, Fiat and Amazon.

Garrigues represented both successful applicants before the General Court. The State aid provisions in European Union law prohibit Member States from granting selective advantages through public resources (including tax reductions) to economic operators when such advantages are liable to distort competition and trade between Member States.

In recent times the European Commission has paid particular attention to alleged State aid granted in the form of tax advantages. The most recent and prominent European Commission investigations in the field are those concerning tax rulings/advance pricing agreements between multinational companies (namely Apple, Starbucks, Fiat and Amazon) and a number of Member States (namely Ireland, the Netherlands and Luxembourg). Very recently – on 17 December 2014 - the European Commission announced that it had extended its tax rulings investigation to all Member States.

The legal assessment of tax-related State aid cases generally hinges on the analysis of whether a given measure is selective (i.e. benefits, a priori, some companies to the exclusion of others) or, on the contrary, is one of general application, thus falling outside the scope of State aid rules.

The recent General Court judgments in cases T-219/10 Autogrill and T-399/11 Banco Santander deal precisely with this fundamental issue of selectivity. The judgments annulled two Commission decisions which had declared a provision in the Spanish corporate tax law to amount to State aid and ordered the recovery of the tax deductions granted in application thereof. The provision at issue allowed any company subject to the Spanish corporate tax to amortize the financial goodwill (i.e. the difference between the price paid and the value of the underlying assets) arising from acquisitions of foreign companies.

The judgments - which validate the arguments put forward by Garrigues on behalf of its clients - held that a measure which may in principle confer an advantage to all companies without distinction within the Member State concerned cannot be deemed ‘selective’ in the sense of EU State aid law. According to the General Court, the existence of a derogation from, or an exception to, a reference framework does not, by itself, establish that a measure favours ‘certain undertakings or the production of certain goods’ for the purposes of EU law, since that measure is available, a priori, to any company. The judgments explain that the Spanish regime was not aimed at any particular category of companies or the production of particular goods, but at a category of economic transactions, and therefore did not exclude, a priori, any category of company from taking advantage of it.

The General Court rejected the Commission’s contention that the measure only benefitted particular groups of undertakings which make certain investments abroad. The judgments point out that such an approach could lead to every tax measure, the benefit of which is subject to certain conditions, being found to be selective, even though the beneficiary company would not share any specific characteristic distinguishing it from other undertakings, apart from the fact that it would be capable of satisfying the conditions to which the granting of the measure is subject.

The Court recalled that the fact that a measure favours companies which are taxable in one Member State as compared to undertakings which are taxable in another Member State does not affect the analysis of the selectivity criterion.

These are, in sum, important and much welcomed judgments that clarify one of the most hotly debated issues in State aid law and set a limit to the Commission’s expansive interpretation of the selectivity criterion.

There is significant expectation as to the impact that these rulings might have on other ongoing investigations and pending cases and, in particular, on the European Commission’s investigations into tax rulings and advance pricing agreements concerning multinational companies such as Apple, Starbucks, Fiat and Amazon. In all of these investigations the Commission appears to presume, in essence, that an advantageous tax treatment offered by one Member State might, under certain circumstances, give rise to a State aid. The Judgments of the General Court in the Autogrill and Banco Santander cases nonetheless make it clear that differences in treatment across Member States’ taxation systems are not relevant for State aid purposes, and that an exception to the generally applicable tax rules cannot in itself be considered selective. According to the General Court, in order to identify selectivity it is necessary to consider, within a reference framework, whether the advantages at issue could only be granted to specific companies or sectors to the exclusion of others.